Consumer Confidence Falling; Here’s What to Expect Next

The monthly Bloomberg Consumer Comfort Index, a consumer confidence indicator that shows the expectations of Americans about the U.S. economy, plunged to its lowest level in October since November of 2011. The index stood at -31 in October, down from minus nine in September. (Source: Bloomberg, October 17, 2013.) This index ranges from +100 to -100 (very optimistic to very pessimistic).

At the very core, consumer confidence gives an idea about consumer spending in the U.S. economy. The better the consumer feels, the more they spend: it’s just that simple. If someone doesn’t have a job but has expenses that need to be paid, they will not go out and buy that new flashy car or the house with the greener grass. They are more likely to keep what they have, and cut back on their discretionary spending.

The extent of bleak consumer confidence doesn’t just end here. In these pages, I have been talking about how companies in key stock indices are showing dismal revenues, but one sector is showing the opposite trend—discount stores.

Consider the corporate earnings of Family Dollar Stores, Inc. (NYSE/FDO); the company’s profits increased 27.5% in the fourth quarter of its fiscal year 2013 (ended August 31). Sales at Family Dollar Stores increased 5.8% compared to the same quarter a year ago. (Source: Family Dollar Stores, Inc., October 9, 2013.)

If all the pieces of the puzzle come together as expected (bleak consumer confidence leading to even lower consumer spending), I would not be surprised to see the gross domestic product (GDP) of the U.S. economy decline.

The main factors that drive growth in the U.S. economy are suggesting there isn’t much light at the end of tunnel. And I continue to question the so-called economic recovery we have been witnessing since the financial crisis.

The third-quarter corporate earnings season is underway and it doesn’t look good for the majority of public companies; expect their misery to continue well into the fourth quarter.